Insurance beyond digital — the rise of ecosystems and platforms

An Ongoing drive toward digitisation has put the insurance industry on the verge of a paradigm shift. The pace of change has accelerated thanks to tremendous increases in the volume of electronic data, the ubiquity of mobile interfaces and the growing power of artificial intelligence (AI). In the early years, companies that digitised were at the forefront of the industry.

Today, digitisation has permeated every level of the competitive landscape. Society’s growing reliance on digital technologies is not only reshaping customer expectations, but also redefining boundaries across industries. Insurers cannot avoid this phenomenon: As traditional industry borders fall away, the future of insurance stands to be greatly influenced by platforms and ecosystems.

A platform is a business model that allows multiple participants (producers and consumers) to connect to it, interact with one another and create and exchange value. The most successful companies in the digital era, including Alibaba Group Holding Ltd, Amazon.com Inc and Facebook Inc, were all designed on platform business models.

An ecosystem, meanwhile, is an interconnected set of services that allows users to fulfill a variety of needs in one integrated experience. Consumer ecosystems currently emerging around the world tend to concentrate on needs such as travel, healthcare, or housing. Business-to-business ecosystems generally revolve around a certain decision maker — for example, marketing and sales, operations, procurement, or finance professionals.

To succeed in ecosystems, insurers will have to take a hard look at their traditional roles and business models, and evaluate opportunities to partner with players in other industries. They must also understand how ecosystems will shift value pools and change the nature of risk.

Adopting an ecosystem mindset will be an arduous journey for many insurers, but those that understand this evolving landscape can take the first steps to creating new revenue sources.

Through digital ecosystems, companies are betting big on opportunities that have the potential to realign global markets, thus ushering in an era of “sectors without borders”. The benefits of digital ecosystems won’t be distributed evenly, however.

McKinsey & Co’s research shows that while digital technology propels some companies to become clear market winners, it depletes corporate earnings and overall value for many others.

Insurers in Digital Ecosystems

For insurers, shifting from an industry to an ecosystem perspective requires a significant change in how they define their role in the economy.

Currently, insurers act primarily as risk aggregators. They have a passive and limited relationship with customers, which increases their exposure to disintermediation, disaggregation, commoditisation and invisibility.

If insurers were to lose their distribution and customer relationships, they would be left with a few options to reinvent their business models. Adopting an ecosystem perspective — re-evaluating the traditional business model and considering partnerships with players both within and outside the industry — could reinvigorate insurers’ digital strategies.

Role of New Insurer

Insurers can play multiple roles in an ecosystem. For example, the personal-mobility ecosystem offers a range of opportunities to expand into areas such as vehicle purchase and maintenance management, ride-sharing, carpooling, traffic management, vehicle connectivity and parking. As a result, insurers have a range of opportunities to expand their roles.

Mobility is in the middle of a significant tech disruption, with Lyft and Uber Technologies Inc leading the charge in on-demand services, and giants such as BMW AG entering the fray with car-sharing club DriveNow. In addition, Apple Inc, Google Inc’s Waymo and Tesla Inc are competing to automate cars, one function at a time.

Most of the traditional automotive players seem to be at a disadvantage in the mobility industry and face a pressing need to reimagine their roles. Some are starting to see opportunities to move toward an ecosystem mindset.

A look at today’s connected-car ecosystem illustrates the benefits and risks that lie ahead for auto insurers. Innovation has caused significant disruption, resulting in the emergence of four natural stakeholders in the eco- system: Original equipment manufacturers (OEMs), high-tech players, insurers and tele- com providers.

As mobility evolves, first movers will have the opportunity to transition from stakeholders to orchestrators in three key areas: Customer relationships, network and service management, and analytics.

To position themselves as true ecosystem players and to fend off moves by other stakeholders, insurers need to build capabilities in a number of areas, including mobile sensors, analytical tools and customer interfaces. For example, insurers have made significant inroads using telematics, but profit pools are still under threat due to stiff competition.

As more OEMs conceptualise line-fitted telematics devices and ride-sharing providers such as Uber grow ever stronger in network management, it is incumbent on insurers to move from risk aggregation to risk prevention.

At the same time, executives must understand that while insurance products and related security services will always be at the core of the insurance business, services such as telematics are a way of developing meaningful customer relationships.

  • Abridged from an article published at McKinsey & Co authored by Tanguy Catlin, Johannes-Tobias Lorenz, Jahnavi Nandan, Shirish Sharma and Andreas Waschto. The views expressed are of the writers and do not necessarily reflect the stand of the newspaper’s owners and editorial board.